If you’re interested in a compelling case for how to make tough decisions as a leader, check out Betaball. In this entertaining and informative book, Erik Malinowski presents a compelling case how team owners Joe Lacob and Peter Guber turned the Golden State Warriors from perennial NBA losers to two-time NBA champions by making tough decisions.
Malinowski explains that one of the toughest decisions for the franchise came at the end of the successful Warriors’ 2013-2014 season, which ended in a game 7 loss to the L.A. Clippers in the first round of the playoffs. Lacob had to decide if he should fire his head coach, Mark Jackson.
Head coaches normally live or die by how well the team does on the court. Therefore, this decision should have been a no-brainer. However, this was not a normal situation.
Jackson was the first head coach to take the Warriors to two consecutive playoff seasons in the past twenty years, and was only one of three coaches in franchise history to record a 50-win season. Furthermore, Jackson was very popular with players and fans.
On the other hand, Jackson had just been involved in a very public and distracting scandal. While publicly putting forth an image as a pastor and man of high standards, privately he was having an affair, which later became public when his mistress tried to blackmail him.
Lacob had to decide whether to fire a popular and successful coach which would disappoint players and fans. Or Lacob had to somehow overlook Jackson’s off-court escapades, which were a distraction to both the team and the organization.
Sunk cost versus opportunity cost
Lacob was facing the classic microeconomics conundrum between sunk costs and opportunity costs.
In microeconomics, sunk costs refer to all the costs that have already been incurred and cannot be recovered. These costs can be money but can also be things like time invested in training and relationships with people.
On the other hand, an opportunity cost (also known as an alternative cost) is when a person considers the loss of a potential gain if a different choice is taken. For example, what would be the cost of keeping Jackson and not finding another coach compared to finding a new coach?
On the surface, Jackson was a good investment. He had yielded two trips to the playoffs over two seasons and was popular with players and fans.
On the other hand, Jackson did not have full faith in using data analytics for the team, which Lacob believed was important for the long-term success of the franchise. In addition, Jackson did not have good relationships with everyone in the organization and his coaching staff were not top-notch.
When facing the decision between sunk costs and opportunity costs, Lacob had to use a different metric to make the decision. He had to decide what was the best choice for the long-term health and culture of the franchise. Lacob had to weigh what he valued most, which were good relationships for the team culture and using the power of data to improve the team’s play on the court.
Once he had changed the paradigm to what was most important for the long-term success of the franchise, the conflict between sunk costs and opportunity costs became clear. The cost of keeping Jackson was too much. Jackson’s behavior was detrimental to maintaining a positive organization culture, and his lack of faith in data would hurt the Warriors long-term success on court.
Lacob made the tough decision and fired Jackson. The result is NBA history: three final appearances, 2 NBA Championships, and the best single-season record in NBA history under the guidance of head coach Steve Kerr.